Tuesday, October 09, 2007

While Google passes USD600 could its market cap be higher?

Google has passed USD600 overnight. Various analysts are predicting higher. Paul Kedrosky has predicted USD1000 by the end of the year. Which at this time is not as far fetched as many think. What interests me is a USD600 per share gives Google a market cap of USD190.28bn, but with a USD29.84 per share provides a market cap of USD280.55bn. Almost USD90bn more in market cap.

This leads to the question. If Google split its stock, how fast would the share price then rise and what would the market cap become? Could it pass Microsoft. Splitting the stock would initial reduce the share price and make more shares available for trading.

My guess is that the increase in share price after the split would be very rapid as many traders increase their existing holding and new traders create a holding. All in all an interesting thought experiment.

Update: Quick thought. Given that stock options are one of the key parts of Google compensation, I would think that as the stock price rises closer to USD1000 it will make these options less attractive for new employees. One way to address the issue would be to split the stock and give more room for faster growth for new employees. Nor would this harm existing employees. In fact it would allow them to realise some of their "wealth" without massively changing their share ownership.